Quick Facts

Peru’s economic freedom score is 67.7, making its economy the 47th freest in the 2015 Index. Its score is 0.3 point better than last year, with improvements in freedom from corruption, labor freedom, and monetary freedom outweighing declines in business freedom, the management of government spending, and fiscal freedom. Peru is ranked 8th out of 29 countries in the South and Central America/Caribbean region, and its overall score is above the world average.

Despite rapid growth and a more business-friendly government, economic freedom in Peru has declined by 0.9 point since 2011. Scores have fallen in four of the 10 factors, including fiscal freedom, the management of government spending, business freedom, and labor freedom.

Reforms, openness to international trade, and burgeoning tourism and mining industries have facilitated rapid growth in the past. Numerous free trade agreements have helped provide a catalyst for domestic reforms and to build institutions, but underlying structures remain weak. The judiciary is vulnerable to political interference, and corruption remains pervasive.

Background

Economic liberalization begun under former President Alberto Fujimori in the 1990s and continued by successive administrations, including that of current President Ollanta Humala of the leftist Peruvian Nationalist Party, has attracted significant foreign investment and lifted millions out of poverty. Humala, who once led a failed military coup against Fujimori, ran for office on a platform of more state intervention in the economy but has governed moderately and has respected the rule of law. Significant natural resources include gold, copper, and silver. Whether the economy can withstand a commodity-price downturn remains a source of concern. Less than 30 percent of Peruvians now live below the poverty line, and economic growth has been well above the Latin American average. The U.S.–Peru Free Trade Agreement has expanded trade and employment. Peru has entered into numerous other free trade agreements and is a founding member of the Pacific Alliance.

Very poor institutions open the door to illegal activities, especially in rural areas. Corruption in the security forces, the judiciary, customs agencies, and ports facilitates shipments of cocaine and other contraband. Abuses of intellectual property rights remain commonplace, enforcement is patchy and slow, and punishments are often disproportionately lax. The dysfunctional judiciary is widely distrusted and prone to corruption scandals.

Peru’s top individual and corporate income tax rates are 30 percent. Other taxes include a value-added tax and a financial transactions tax. Total tax revenue amounts to 18.5 percent of the domestic economy, and government spending is equivalent to 19.6 percent of domestic production. Public debt is equal to 20 percent of gross domestic product.

With no minimum capital required, it now takes six procedures to start a business, but completing licensing requirements remains burdensome, still taking over five months on average. Employment regulations continue to evolve, with more flexibility gradually being introduced into the labor market. The government subsidizes electricity and automotive and cooking fuels.

Peru’s average tariff rate is 1.5 percent. Trade barriers have been reduced through the Pacific Alliance, but imports of used clothing and cars are restricted. Foreign investors generally receive national treatment, but there are sectoral limits. The financial sector has undergone gradual modernization. Credit to the private sector has increased steadily, and foreign ownership in the financial sector is growing.